Wednesday, March 3, 2021

GST Checklist Before Year End

Here is a quick checklist of things to do under GST before the end of the financial year.

1. Creation of New Series of Invoices for the new Financial Year

2. E-Invoicing preparedness for all businesses, as the Central Government may mandate e-invoicing for businesses with turnover thresholds less than Rs. 100 crore starting 1st April 2021 

3. Examine the "Aggregate Turnover" for FY 2020-21 as per the definition under the GST laws, which means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), but includes exempt supplies, exports of goods or services or both and inter-State branch transfers.

The aggregate turnover is a determining factor for the following decisions:
a) To choose options for filing of GSTR-1 in the FY 2021-22 on quarterly QRMP scheme or on monthly frequency
b) Decide on number of digits to be shown for HSN codes (turnover up to Rs. 5 crores - 4 digits, turnover above Rs. 5 crores - 6 digits)
c) Whether to opt for the composition scheme

4. Filing of Letter of Undertaking (LUT) online to be able to export without payment of IGST in FY 2021-22

5. Reconciliation of GSTR-2A with ITC claimed in GSTR-3B - contact vendors who have not uploaded the invoices and reverse ITC wrongly availed either due to blocked credit or due to refusal of vendor to upload the invoice on his GSTR-1

6. Examine vendors unpaid for over 180 days as on 31.03.2021 and either pay them immediately or reverse the ITC taken on supplies received from them.

7. Check if any Blocked Credit under section 17(5) of the CGST Act has been availed during the year and reverse the same with payment of interest.

8. Ensure that items sent for job-work are received back within one year to prevent them being treated as supplies and outward GST be payable. Reconcile and update transactions in ITC-04.

9. Reconciliation of GSTR-1 with GSTR-3B and Sales as per books of accounts

10. Reconciliation of E-Way Bills with GSTR-1

11. Reconciliation of ITC ledgers such as Cash Ledger and Credit Ledger balances with those balances in your books of accounts.

12. Reconciliation of physical stock with stock as per books of accounts

13. Invoicing for administrative supply by Head Office to all branches for support services provided throughout the year

Monday, February 22, 2021

Know Your Supplier on GST Portal

The GST System has introduced the “Know Your Supplier” facility by which you can pick suppliers who are mostly tax compliant and will file proper sales invoices in their GST returns timely so that you can obtain the GST input tax credit (ITC) on those purchases.

On logging in to the GST portal, navigate to the search tab and enter the GSTIN of the taxpayers for which you seek details.

The facility shall provide the following particulars about your suppliers.

State Jurisdiction Officer / Central Jurisdiction Officer
Registration Date
Constitution of Business
Status of GSTIN: Active/Suspended/Cancelled
Taxpayer Type: Regular/Composition/Casual
Annual Aggregate Turnover
Percentage of Tax Payment made in Cash
Goods and Services provided with HSN/SAC code
Names of the Proprietor, Partners, Directors
Nature of business activities
E-way Bill history
Legal and Trade Name
Principal and Additional places of business
Contact Details

Tuesday, February 9, 2021

TDS on Purchase of Goods - Section 194Q

Which person has to deduct TDS on purchase of goods?

The Finance Act 2021 has introduced the concept of TDS on Purchase of Goods under Section 194Q of the Income Tax Act, 1961, by which:

Turnover > 10 Crores: Any person whose total sales, gross receipts or turnover from business exceeds Rs. 10 crore in the previous financial year; and

Purchase > 50 Lakhs: purchases goods of a minimum value of Rs. 50 lakhs in a financial year from a resident seller; then

Time of Deduction: such buyer shall at the earlier of: (i) time of credit of such amount to the seller's account, or (ii) at the time of payment to the seller 

Rate of TDS: deduct TDS @ 0.1% of such sum exceeding Rs. 50 lakh

From when is this section coming into effect?

This section shall come into effect from 01-Jul-2021.

Is this section contradictory or complimentary to TCS on Sale of Goods under section 206C(1H)? What would happen if both seller and buyer need to collect or deduct TDS?

As per sub-section (5) of section 194Q, the provisions of this section shall not apply to a transaction on which:
(a) tax is deductible under any of the provisions of this Act; and
(b) tax is collectible under the provisions of section 206C other than a transaction to which section 206C(1H)applies.

Further, a proviso to section 206C(1H) states that the provisions of this section shall not apply, if the buyer is liable to deduct tax at source under any other provision of this Act on the goods purchased by him from the seller and has deducted such amount.

Thus, it can be understood that TDS is mandatorily required to be deducted by a buyer on purchase of goods above Rs. 50 lakhs if the purchaser has a turnover of over Rs. 10 crores in the previous financial year. If such buyer fails to deduct TDS, then the seller has to collect TCS on the sales exceeding Rs. 50 lakhs at 0.10%.

The buyer will be responsible to deduct TDS on purchase of goods @0.1% only if he fulfills the turnover criterion. In case the buyer's previous financial year's turnover is less than Rs. 10 crores, but the seller's turnover is above Rs. 10 crores, then the seller will be responsible to collect TCS @0.1%.

What is the repercussion of not deducting TDS on purchase of goods under this section?

As per section 40(a)(ia) of the Income Tax Act, 30% of the value of purchase will be disallowed while computing the taxable income of the buyer.

Whether TDS is to be deducted on the total invoice value including the GST?

In respect of Section 206C(1H), the CBDT has clarified vide Circular No. 17 dated 29-Sep-2020 that since the collection is made with reference to receipt of the amount of sale consideration, no adjustment on account of indirect taxes including GST is required to be made for the collection of tax under this provision.

As the TDS deduction u/s 194Q is to be made with reference to the purchase value, we may apply the same principle and conclude that GST shall form part of the purchase value, and TDS is deductible on the value inclusive of GST.

Friday, February 5, 2021

Additional Tax Deduction for Generating Employment - Section 80JJAA

The Income Tax Act, 1961 has a provision under section 80JJAA, by which an additional tax deduction is offered to businesses generating new employment during the year.

The section grants a deduction of 30% of additional employee cost incurred by the taxpayer for each of the 3 financial years starting from the year in which such employment is provided to new persons.

How is the deduction calculated?

Additional Employee Cost in the year = Rs. 1,00,000/-

Deduction allowed as expense for income tax calculation purposes:
Year 1 = Rs. 1,30,000/-
Year 2 = Rs. 30,000/-
Year 3 = Rs. 30,000/-

What kind of employees are considered as Additional Employees during the year for the purpose of this calculation of additional deduction?

"Additional Employee" means an employee who has been employed during the financial year and whose employment has the effect of increasing the total number of employees employed by the employer as on the last day of the preceding year.

Thus, if a business hires 30 new employees during the year, but 20 old employees leave, the additional employees are only 10.

Only the following category of employees are considered for the purpose of count in new employees:

1. Salary =< 25,000 p.m.: Whose total emolument is not more than Rs. 25,000 per month. Total emolument means all costs paid or payable to the employee by any name called.

Such emolument would not include any contribution paid or payable by the employer to any pension fund or provident fund or any other fund for the benefit of the employee under any law, or any lump-sum payment paid or payable to an employee at the time of termination of his service or superannuation or voluntary retirement, such as gratuity, severance pay, leave encashment, voluntary retrenchment benefits, commutation of pension and the like.

2. PF Registered: Registered and contributing to a Recognized Provident Fund (PF). Those employees for whom the entire contribution is paid by the government under the Employees' Pension Scheme under the EPF Act are not covered. Casual workers are not covered.

3. Min. 240 Days: The employee is employed with the business for a minimum 240 days in the financial year. If an employee does not complete 240 days in a financial year, he may be considered as new employee in the next financial year when he completes these number of days.

For businesses in the operations of manufacture of apparel, footwear or leather products, the minimum number of days of employment is 150 instead of 240.

Thursday, February 4, 2021

Liberties to One Person Companies (OPCs) w.e.f. 01-Apr-2021

Entrepreneurs prefer to incorporate companies over sole proprietorships owing to the benefit of limited liability, i.e. business liabilities would not extend to their personal assets as their legal identity would be different from that of the company in which they hold majority shares or controlling interest.

Further, as a sole proprietor all business profits are taxed as per slab rates in the Individual's ITR. It is also believed that companies enjoy better credibility as businesses over sole proprietorships while dealing with corporate customers.

However, minimum 2 shareholders are required to incorporate a private limited company, and minimum 3 to incorporate a public limited.

To extend the benefit of companies to individual business owners, the concept of a One Person Company (OPC) was introduced by the Companies Act, 2013. However, due to restrictions around the scale of business an OPC could operate under, the structure did not see the kind of popularity it was expected to.

To correct the approach, the Companies (Incorporation) Rules are proposed to be amended w.e.f. 01-Apr-2021 to allow OPCs to grow without any restrictions on paid-up capital and turnover.

Liberties Extended to OPCs

Non-Resident Individual: Any Indian citizen, whether resident in India or otherwise, would be allowed to form an OPC. The residency period has been proposed to be reduced to 120 days from 182 days for NRIs, for being eligible to incorporate an OPC only.

Anytime Conversion to Pvt. Ltd. or Public Co.: Earlier, an OPC could not be converted to a private limited or public company before completion of 2 years from date of incorporation. However, such restriction is now proposed to be lifted. The related e-Forms shall also be rationalized.

No Restriction on Paid Up Capital: Earlier, an OPC could not have a paid up capital of over Rs. 50 lakhs. The restriction shall be lifted.

No Restriction on Turnover: An OPC could not have an annual turnover of over Rs. 2 crores. The condition is now lifted, and there shall be no such cap on turnover for OPCs.


Wednesday, February 3, 2021

Sarthak Ahuja Discusses the Union Budget 2021 (Podcast)

Our Partner, Mr. Sarthak Ahuja, was on The Indian Dream's podcast discussing the Union Budget 2021.

The discussion was around the basis for announcement of policies around infrastructural development, the objective of the government with Product Linked Incentives, tax breaks for start-ups, and how all of these are great ideas, but their long term results depend entirely on their execution.

Tuesday, February 2, 2021

Budget 2021: Detailed Tax Updates from the Finance Bill 2021

This piece is an extension of our summary of the Highlights from the Budget Speech 2021.

The sections referred to herein are of the Income Tax Act, 1961, except wherever specifically mentioned being of any other Act.

No Change in Tax Rates (same as last year)

No change in tax rates for individuals, HUFs, companies, firms and others.

As earlier announced, an individual or HUF shall have the option to pay tax in respect of the total income at lower slab rates as announced last year, as part of Section 115BAC. A co-operative society shall have the option to pay tax at lower rate of 22% as per Section 115BAD

Input Tax Credit (ITC) only on Invoices/Notes Reflecting in GSTR-2A/GSTR-2B

A new clause (aa) to section 16(2) of the CGST Act is being inserted to provide that input tax credit on invoice or debit note may be availed only when the details of such invoice or debit note have been furnished by the supplier in the statement of outward supplies.

Tax Audit Turnover Threshold increased to Rs. 10 Crore (if over 95% banking transactions)

if total sales, turnover or gross receipts from business exceed Rs. 1 crore, a person is required to get his accounts audited. The threshold limit for audit u/s 44AB was increased to Rs. 5 crores last year if minimum 95% of all receipts and payments were made through banking or digital channels. This limit has now been increased to Rs. 10 crore.

No Requirement of Professional Certified GST Annual Return & Reconciliation

Section 35(5) of the CGST Act is being omitted so as to remove the mandatory requirement of getting annual accounts audited and reconciliation statement submitted by specified professional.

Section 44 of the CGST Act is being substituted so as to remove the mandatory requirement of furnishing a reconciliation statement duly audited by specified professional and to provide for filing of the annual return on self-certification basis.

Linking of Foreign Exchange Remittance in Case of Export of Goods with Refund

Section 16 of the IGST Act is being amended so as to link the foreign exchange remittance in case of export of goods with refund.

Further, such amendment will propose to restrict the zero-rated supply on payment of integrated tax only to a notified class of taxpayers or notified supplies of goods or services.

Timely Payment of PF and Other Such Statutory Dues to Claim Deduction from Business Profit

If any sum towards contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the welfare of the employees is actually paid by the assessee on or before the due date for such payment, only then will the same be allowed as deduction as expense for the purpose of computing taxable profit.

Monday, February 1, 2021

Budget Speech 2021: Tax Highlights

Here are a few highlights from the Budget Speech this morning. Detailed analysis of the same shall follow soon after our study of the Memorandum to the Finance Bill 2021.

Relevant for Businesses

Tax Audit Turnover Threshold: The turnover threshold for mandatory requirement of Tax Audit has been increased from Rs. 5 crores to Rs. 10 crores if less than 5% of the gross receipts and total expenses are through modes other than banking channels.

Late deposit of employee's contribution of PF shall not be allowed as deduction from income for the purpose of tax calculation.

Small Companies: Definition under Companies Act, 2013 to change as follows:
a) Paid up share capital threshold: from Rs. 50 lakh to Rs. 2 crore
b) Turnover threshold: from Rs. 2 crore to Rs. 20 crore

Incentivised incorporation of One Person Companies (OPC) by proposing:
- No restriction on paid-up capital and turnover
- Allowing easier conversion of OPC to any other type of company
- Reducing residency limit from 182 days to 120 days
- Allowing NRIs to incorporate OPCs in India

Margin money requirements for start-ups to reduce from 25% to 15%.

New Customs Duty structure to be put into place by 01-Oct-2021:
- Revoking ADD and CVD on certain steel products
- Reducing duties on copper scrap from 5% to 2.5%
- Few mobiles parts to move from NIL to 2.5% rate
- Cutting duty on copper scrap 2.5% from 5%
- Exempting duty on steel scrap for a specified period

Eligibility for tax holiday claim for start-ups extended by one more year. This applies to start-ups recognized by the Inter-Ministerial Board and not those registered solely under the Start Up India scheme.

Capital gains exemption for investment in start-ups extended till 31-Mar-2022. This should be under section 54EE of the Income Tax Act, whereby you invest in a start-up fund notified by the Govt. It does not apply to investing money in your own or a friend's start-up.

Relevant for Individuals

Prefilled Income Tax Return: The online filing portal would have pre-filled income from salaries, interest incomes, dividends, etc. for easier online filing of tax by an individual assessee. No tax relief though.

Advance Tax liability on Dividend incomes shall arise only after the declaration of dividend.

For Senior Citizens of age 75 years and above: Exemption from filing tax returns if earning only pension and interest incomes. The banks shall deduct the full amount of tax liability as TDS. No tax-saving though.

Additional exemption of housing loan interest up to Rs. 1.5 lakhs under section 80EEA on loan taken for affordable housing projects covered under this section extended by a year for loans taken up to 31-Mar-2022. In such cases, the stamp duty value of the house should not be over Rs. 45 lakhs.

Thursday, January 28, 2021

Further Analysis of CSR Provisions 2021

We had written a brief on the recent changes in CSR requirements by Companies here. We are now delving on a few other details of such changes in light of the Companies (Amendment) Act 2020.

Set-off Provisions

If the company spends an amount exceeding the required 2% of average net profits for the 3 immediately preceding financial years, such excess amount may be set off against the requirement to spend in the immediate succeeding 3 financial years subject to the following conditions:
(i) Excess amount available for set off shall not include the surplus arising out of the CSR activities;
(ii) Board of Directors shall pass a resolution to that effect.

Consequence of Not Spending on CSR

If a company does not spend the amount as required to be spent under CSR provisions, the company shall be liable to the following as per the Companies (Amendment) Act 2020:
(i) Penalty of two times the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent CSR Account, as the case may be, or Rs. 1 crore, whichever is less; and (ii) Every officer of the company who is in default shall be liable to a penalty of 1/10th of the amount required to be transferred by the company to such Fund, or the Unspent CSR Account, as the case may be, or Rs. 2 lacs, whichever is less.

According to the amendments to CSR Rules 2021, until a fund is specified in Schedule VII for the purposes of section 135(5) and (6) of the Act, the unspent CSR amount, if any, shall be transferred by the company to any fund included in schedule VII of the Act.

Thus, the CSR liability of 2% of average profits, as applicable, may either be spent on CSR activities or transferred to a Fund as specified.

Requirement for CSR Committee

Where the amount to be spent by a company for CSR does not exceed Rs. 50 lakhs in a financial year, a CSR Committee is not required to be formed.

In such cases, the Board of Directors may fulfill the duties otherwise to be carried out by such Committee.

A resolution for dissolution of CSR Committee may be passed by the Board of Directors in its meeting.

Period of Keeping Books of Accounts

Companies Act, 2013: Section 128(5)
- A company is required to maintain its books of account and vouchers for a period of 8 years immediately preceding the current year.
- The Register and Index of Members must be maintained permanently.
- The copies of all Annual Returns and Certificates annexed thereto must be maintained for 8 years from date of filing with the ROC.

Income Tax Act, 1961: Rule 6F of the Income Tax Rules
- Assessees are required to preserve the specified books of account for a period of 6 years from the end of the relevant assessment year, i.e., for a total period of 8 previous years.
- Period of six years gets extended if the assessment is reopened u/s. 147, till the time assessment is completed.
- Transfer Pricing documents and information specified under Rule 10D must be maintained for a period of 8 years from the end of the relevant assessment year, i.e., for a total period of 10 previous years.
- In a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax has escaped assessment for any assessment year — 16 years from the end of relevant assessment year.

Goods & Services Tax: Section 36 of the CGST Act, 2017
- 6 years from the due date of furnishing of annual return, or
- 1 year after final disposal of such appeal or revision or proceedings or investigation

Friday, January 22, 2021

Amendment in CSR Provisions 2021

The Companies (Corporate Social Responsibility Policy) Rules 2014 have been amended by the Amendment Rules 2021 through a Notification to that effect dated 22-Jan-2021.

A few highlights from the Notification are reproduced below with a link to the detailed document.

Applicability of CSR Provisions (No Change)

CSR provisions of The Companies Act, 2013 are applicable to companies registered under The Companies Act, which satisfy any of the following conditions in any of the three preceding financial years.

a) Net Worth of Rs. 500 crore, or more; or
b) Turnover of Rs. 1000 crore, or more; or
c) Net profit of Rs. 5 crore, or more

Filing of Form CSR-1 by Not-for-Profit/Charitable Institutions, Trusts, Societies and Companies

With effect from 01-Apr-2021, every entity that carries out CSR activities shall register itself with the Central Government through an e-Form CSR-1. This requirement shall not affect CSR projects or programs approved prior to 01-Apr-2021.

The following entities would require such registration if they wish to be eligible to undertake CSR activities for companies.

a) Company established under section 8 of the Companies Act, 2013 with section 12A and section 80G registrations under the Income Tax Act, 1961.

b) Registered Public Trust with section 12A and section 80G registrations under the Income Tax Act, 1961.

c) Registered Society with section 12A and section 80G registrations under the Income Tax Act, 1961.

d) Company established under section 8 of the Companies Act, 2013 or Registered Trust or Registered Society established by the Central Government or State Government.

e) Entity established under an Act of Parliament or State Legislature.

The form seeks the following information:

(i) Type of Entity
(ii) Registration Number
(iii) Date of Incorporation
(iv) Address
(v) Email (verified through OTP)
(vi) PAN (copy to be attached as well)
(vii) Details of Directors, Board of Trustees with Designation, DIN/PAN and Email ID
(viii) Copy of Certificate of Registration

Format for Annual Report on CSR Activities to be included in the Board's Report for the Financial Year commencing on or after 1st April 2020

The Director's Report should have an annexure giving details of the CSR Activities undertaken during the year. The format of the report is given in the Notification linked below, and the contents are briefly listed as under.

Tuesday, January 19, 2021

GST Premises Verification through App by Tax Officials

An app called the "GST-PV" is being launched through which all the Tax Inspectors of the GST Department will conduct physical verification of the premises of taxpayers with their smartphones, using GPS geo-tagging, photo and video recording.

This is being done to collect evidence on registered entities with incorrect information of their premises, or no physical presence on their registered premises.

In light of the same, we recommend to all that the following precautions be taken with respect to your GST registrations.

1) Put up a board with your registered name and GSTIN at all the locations of your registration.

2) Register additional places of business on your registration certificate to ensure all locations are mentioned on it.

3) Put up your GST Registration Certificate at a prominent place inside your premises.

4) Maintain proper documentary records of all your GST transactions in computerised form or physical, as prescribed under the law.

Wednesday, January 6, 2021

Changes in GST Input Tax Credit from 01-Jan-2021

ITC Maximum up to 105% of Available Credit in GSTR-2B

As per Rule 36(4) of the CGST Rules, the restriction of claim of Input Tax Credit (ITC) in respect of invoices or debit notes not furnished by the suppliers has now been reduced from 10% to 5% of the credit available in GSTR 2B.

Thus, it is reiterated to all registered persons and their accountants that to avail full input tax credit, ensure that all vendors upload the invoices in GSTR-1 and/or IFF and file the returns on time.

The GST Department may not allow ITC only on the basis of availability of invoice from the vendor, which may lead to dispute with the Department, and may also not be allowed by the GST Auditor at the time of filing of GSTR-9 and GSTR-9C for the year.

Communication with Defaulting Vendors

A registered person can communicate with its defaulting vendor through the GST portal itself, informing them of missing documents or shortcomings.

The person may access such facility by going to "Services" tab on the portal, and then selecting the "Communication Between Taxpayers" option under "User Services".

An Inbox and Outbox would also be available to track responses and follow ups.

We recommend that businesses use such facility where they feel that the loss on account of input tax credit due to vendor's default in filing returns may be high, and they would want to create a written trail to later seek their right to claim the credit with the department if the vendor continues to default.

Documents may also be allowed to be uploaded along with such notifications.
Further, the notification sent will also be intimated to the recipient's registered email ID and phone number.

Quarterly Return Monthly Payment (QRMP) in GST from 01-Jan-2021

The CBIC has introduced the Quarterly Return Filing and Monthly Payment of Taxes (QRMP) scheme under GST to help small taxpayers whose annual turnover is less than Rs. 5 crores. This scheme allows taxpayers to file their GSTR-3B on quarterly basis, but continuing to pay tax every month.

Eligibility for QRMP

Any registered person with annual aggregate turnover up to Rs. 5 crores in the preceding financial year may be allowed to file his GST returns on quarterly basis, with payment of tax on a monthly basis.

If the aggregate turnover exceeds Rs. 5 crore at any time during the year, the person would not be eligible for QRMP from the succeeding quarter.

Further, a person would be eligible for QRMP in any quarter only if the last return due as on date of availing such option has been filed. 

If a person has multiple registration numbers on the same PAN, they may choose to opt-in for QRMP for only a few out of all the registrations.

Features of QRMP

Any eligible person who has availed the option would have to:

a) furnish details of outward supply in Form GSTR-1 on a quarterly basis

b) facility to furnish invoices relating to the first and second months of such quarter through the Invoice Furnishing Facility (IFF) available on the portal latest by the 13th of the succeeding month. This has been enabled so that the customers of such persons can view the invoices in their GSTR-2A, GSTR-2B and avail input tax credit (ITC) thereon without having to wait for the quarterly GSTR-1 to be filed.

c) pay the GST for a month by the 25th of the succeeding month through challan in Form PMT-06. While generating such challan, the person should select the option "monthly payment for quarterly taxpayer"